Global Economics

Audi: Looking For Traction In The U.S.


The buzz around Audi's new TT was growing even before the sports car was set to have its glitzy unveiling beneath Berlin's Brandenburg Gate on Apr. 6. Across the Atlantic, Tracie Dean, general manager of Jim Ellis Audi of Atlanta, says customers have been showing up for weeks to put cash down for both the TT, priced around $35,000, and the $50,000 Q7 SUV. "People are just dying to get them," she says.

The question is, how many? For decades, Audi has taken a backseat in the U.S. to the more established Mercedes-Benz (DCX), BMW, and, more recently, Lexus nameplates. Yet Audi has been enjoying roaring success in Europe, where it sells nearly as many cars as BMW. With European high-end consumers snatching up everything from its A3 compacts to its luxury A6 sedans, the Bavarian carmaker earned a pretax profit of $1.6 billion, up 14.6%, and revenues rose 8.5%, to $32 billion.

Audi's Achilles' heel, however, remains the huge North American luxury market, where it still needs to overhaul its network of dealerships and polish service and quality to better compete with BMW and Mercedes. So far this year, Audi has sold fewer than 18,000 cars in the U.S., vs. more than 63,000 sold by BMW, according to Autodata Corp., a Woodcliff Lake (N.J.) market research firm. "Audi is still rebuilding its brand image" in the U.S., says George Peterson, president of AutoPacific in Southfield, Mich. "BMW has been the picture of marketing consistency since 1977."

To close the gap, Audi Chief Executive Officer Martin Winterkorn is counting on not just the TT and Q7 but at least eight other new models that will come to market over the next two years, including a much awaited high-end luxury sports coupe called the R8. He's also behind a push to upgrade dealerships in 25 urban centers, from Miami to San Francisco, and split them off from the shared showrooms with the more prosaic Volkswagen. Quality is on the mend, too. Last year, Audi ranked eighth in J.D. Power & Associates Inc.'s (MHP) annual customer survey of quality, up from eleventh in 2004.

The new TT, designed by Audi's Italian chief designer Walter Maria de'Silva, is surely an attention grabber, with its muscular stance, predatory-looking grill, and elegant lines. Still, it will be hard to top the first-generation TT, which was a smash when it rolled out in 1998. The model quickly became a powerful image maker for Audi with its crisp, geometric design that broke with automotive stereotypes.

BIG-CITY STYLE

The TT is all about burnishing the Audi brand, but it's the Q7 that could do the most to boost U.S. sales. The huge seven-seat SUV, built on the same platform as the Porsche (PSEPF) Cayenne and the Volkswagen Touareg, sports clean styling and such features as a radar-based warning system to ease the problem of rear-view-mirror blind spots. Thanks to its partly aluminum frame, the Q7 will be the most fuel-efficient SUV in its class, getting about 20 mpg. And even if gas prices soar higher, "for anyone who can afford a Q7, the price of gasoline is an asterisk," says James N. Hall, AutoPacific's vice-president for industry analysis.

So far, analysts say, the Q7, which went on sale in March in Europe and will hit U.S. roads in June, is off to a good start. Audi expects to sell 76,000 Q7s in 2007, the first full year of production, including 35,000 in the U.S.

Of course, everything depends on Audi's ability to keep honing its quality image as it aims to crank out one hot model after another. Although Garel Rhys, professor of automotive economics at Cardiff University in Wales, thinks it would take at least five years, "it's not impossible for Audi to catch BMW" in the U.S. For Audi, the race is just beginning..

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